Trends you must know when renting an office in Canberra

The Canberra
commercial real estate market operates on a completely different dynamic to
that of the other Australian capital cities as its is driven almost entirely by
the government sector. According
Savills, the government and community sector accounts for 93% of all leased
stock in Canberra. The remaining 7% is comprised of IT &T and property and
commercial services firms.[1] Consequently leasing activity in Canberra is
contingent upon government spending and the size of the public service
workforce.Most of
Canberra’s office stock (45%) is located in Civic- situated on the opposite
shore of Lake Burley Griffin to Parliament House and linked to the
Parliamentary district via Constitution Avenue. This 1.5 km² area is fringed by
green space and planning regulations have capped building heights at relatively
low levels[2].
Street cafes abound and Canberra’s CBD has a more relaxed vibe than its
interstate counterparts.

Other
important business hubs in Canberra include the Parliamentary precinct and the
Airport.Canberra’s headline
vacancy rate hit an all-time high this year. Overall office vacancies were 15.2%
as of June 2015, up from 13.6% in June 2014.[3]
The increase came off the back of an unfortuitous combination of overhanging
supply and slowing demand.

Over the
past decade Canberra experienced one of the nations’ busiest development
pipelines. Building activity in Canberra continued throughout the GFC despite
slowing dramatically elsewhere. Canberra’s
office stock increased by 1.4% in the 2014-2015 financial year- making it Australia’s
second fastest growing commercial real estate market next to Perth.[4]
Some major developments to come on line recently include 1 Canberra Avenue and
2 Constitution Avenue.[5]On the
flipside, leasing demand has been constrained by ongoing public sector
downsizing. Commercial real estate professionals point to a ‘flight to quality’
which has seen vacancies in secondary buildings jump to over 17% .Furthermore large
volumes of unoccupied space at the airport continue to drag on the market.[6]

Despite the
subdued conditions, rents have remained relatively stable –albeit with higher
incentives. According to Savills net face rents in Civic are currently in the
following range;A Grade: $328 to $390
per square meter per annumB Grade: $283 to $305
per square meter per annum[7]Looking
forward, the consensus is that rents in the A Grade category will hold up.
However rentals for secondary grade properties are likely to slip backwards as
government departments migrate to new buildings with strong ‘green’ credentials
and tenants are lured to better premises by the generous incentives on offer. [8]For
organisations looking to rent an office in Canberra the current environment
presents a great opportunity. The onus is on land lords to provide attractive
deals in order to lock in quality tenants, particularly in the unloved
Secondary Grade categories.[9]Prospective
tenants should however ‘strike while the iron is hot’. Most commentators
believe the cycle is ‘bottoming out’. The supply pipeline has dried up with no
new buildings scheduled for completion in the near future. At the same time significant
volumes of Secondary Grade stock could be withdrawn for conversion to student
accommodation etc[10].Meanwhile industry
commentators anticipate that demand for office space will gradually improve as
the government lifts a hiring freeze and private sector activity gains
momentum. Indeed Colliers have already observed some ‘green shoots’ such as an
uptick in leasing activity in Civic and the Parliamentary precinct and
increasing demand for smaller spaces (sub 1,000 sqm).[11]

Not only is
Canberra’s office market experiencing the nationwide trend towards smaller
office space and sub-leasing, co-working space is making its presence felt.
Established chains like Servcorp and Regus have a solid foothold and more
recently co-working hubs such as BrainSpace, WOTSO Workspace and Entry 29 have
opened their doors.